Special Reports

Purchasing Managers' Index

RBC PMITM signals expansion in September, but at weakest pace in six months

RBC Canadian Manufacturing PMI - Weaker expansion of manufacturing sector in September

October 1, 2012  Growth of Canada's manufacturing sector lost further momentum in September, with the weakest pace of expansion recorded since March, according to the RBC Canadian Manufacturing Purchasing Managers' Index (RBC PMITM). A monthly survey, conducted in association with Markit, a leading global financial information services company, and the Purchasing Management Association of Canada (PMAC), the RBC PMI offers a comprehensive and early indicator of trends in the Canadian manufacturing sector.

The headline RBC PMI - a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector - registered 52.4 in September, which is evidence of a modest expansion in Canada's manufacturing industry. However, having fallen from 53.0 in August, the rate of growth was the slowest for six months. The weaker performance of the sector was further highlighted by the quarterly average PMI reading falling from 54.3 in the three months to June, to 52.8 in the three months to September.

The RBC PMI signalled that both output and new orders increased during September, partly reflecting greater client demand. The rates of growth eased since August, however, with the latest expansion in production the second-weakest in the two-year survey history. The rate of job creation also eased, slowing to a five-month low. Inflationary pressures meanwhile picked up in September, with input prices rising strongly since August.

"All things considered, particularly within the context of the relatively weak global economic and manufacturing data, the fact that Canada's manufacturing sector continues to expand is noteworthy," said Craig Wright, senior vice-president and chief economist, RBC. "While it hasn't been entirely smooth sailing for Canada's broader economy in recent months, continued business spending and improving labour market conditions, among other generally positive factors, will help set the stage for GDP growth of 2.1 per cent in 2012."

In addition to the headline
RBC PMI, the survey also tracks changes in output, new
orders, employment, inventories, prices and supplier delivery
times.

Key findings from the September survey include:

growth of output and new orders slows to eight- and six-month lows respectively;

moderate rise in employment, but rate of job creation weakest since April; and

input prices increase strongly over the month.

Incoming new work received by Canadian manufacturers rose further in September, with a number of monitored companies attributing this to greater client demand. The volume of new export orders also increased over the month, albeit only marginally. Overall, total new orders rose moderately since August, but the rate of growth was the slowest in six months and weaker than the series average.

Manufacturing production rose in response to larger new order requirements. However, the latest increase in output levels was the second-weakest in two years of data collection. Backlogs of work and stocks of finished goods, meanwhile, were both broadly unchanged from one month previously.

The quantity of inputs bought by Canadian manufacturing firms rose further during September. Panellists commented on raising their purchases to meet the increase in output and also to rebuild input inventories, which rose at the fastest rate for four months. Concurrently, suppliers' delivery times lengthened during the latest survey period. The latest increase in lead times on inputs was only modest, however.

Employment in Canada's manufacturing sector increased in September, with approximately 17 per cent of firms hiring additional staff from August. Anecdotal evidence generally linked the increase in employee numbers to greater production requirements. That said, exactly 14 per cent of companies reduced their workforces over the month. Overall, the rate of job creation slowed further to its weakest in five months.

Input costs rose further in September, with fuel and raw materials such as metals and plastics particularly mentioned as having increased in price. Moreover, the rate of inflation was strong and the fastest in four months. Firms passed on greater cost burdens to clients by raising their output charges. Average selling prices rose modestly over the month, with the latest increase the strongest since April.

Ontario saw the weakest improvement in manufacturing business conditions during September.

New order growth slowed in all four regions, with the weakest expansion recorded for Ontario.

The rate of job creation accelerated slightly in Alberta and British Columbia, was broadly unchanged in Quebec, but eased elsewhere.

Alberta and British Columbia posted the strongest rate of input price inflation in September.

"The slowdown in Canada's manufacturing sector was partly reflective of production problems at some companies, with output increasing at the slowest pace since January," said Cheryl Paradowski,
President and Chief Executive Officer, PMAC. "However, weaker growth trends for new orders and employment, and in particular new export work, also contributed and suggest that Canada continued to be hit by ongoing weakness in the global economy."

Notes to Editors:
The RBC Canadian Manufacturing PMI Report is
based on data compiled from monthly replies to questionnaires
sent to purchasing executives in over 400 industrial companies.
The panel is stratified geographically and by Standard Industrial
Classification (SIC) group, based on industry contribution
to Canadian GDP.

Survey responses reflect the change, if any, in the current
month compared to the previous month based on data collected
mid-month. For each of the indicators the 'Report' shows the
percentage reporting each response, the net difference between
the number of higher/better responses and lower/worse responses,
and the 'diffusion' index. This index is the sum of the positive
responses plus a half of those responding 'the same'.

Diffusion indexes have the properties of leading indicators
and are convenient summary measures showing the prevailing
direction of change. An index reading above 50 indicates an
overall increase in that variable, below 50 an overall decrease.

The RBC Canadian Manufacturing Purchasing Managers' Index
(RBC PMI) is a composite index based on five
of the individual indexes with the following weights: New
Orders - 0.3, Output - 0.25, Employment - 0.2, Suppliers'
Delivery Times - 0.15, Stock of Items Purchased - 0.1, with
the Delivery Times Index inverted so that it moves in a comparable
direction.

The Purchasing Managers' Index (PMI)
survey methodology has developed an outstanding reputation
for providing the most up-to-date possible indication of what
is really happening in the private sector economy by tracking
variables such as sales, employment, inventories and prices.
The indices are widely used by businesses, governments and
economic analysts in financial institutions to help better
understand business conditions and guide corporate and investment
strategy. In particular, central banks in many countries (including
the European Central Bank) use the data to help make interest
rate decisions. PMI surveys are the first indicators of economic
conditions published each month and are therefore available
well ahead of comparable data produced by government bodies.

Markit do not revise underlying survey data after first publication,
but seasonal adjustment factors may be revised from time to
time as appropriate which will affect the seasonally adjusted
data series. Historical data relating to the underlying (unadjusted)
numbers, first published seasonally adjusted series and subsequently
revised data are available to subscribers from Markit. Please
contact economics@markit.com.

About RBC
Royal Bank of Canada (RY on TSX and NYSE) and its subsidiaries
operate under the master brand name RBC. We are Canada's largest
bank as measured by assets and market capitalization, and
among the largest banks in the world, based on market capitalization.
We are one of North America's leading diversified financial
services companies, and provide personal and commercial banking,
wealth management services, insurance, corporate and investment
banking and investor services on a global basis. We employ
approximately 80,000 full- and part-time employees who serve
more than 15 million personal, business, public sector and
institutional clients through offices in Canada, the U.S.
and 51 other countries. For more information, please visit
www.rbc.com.

About Purchasing Management Association of Canada
The Purchasing Management Association of Canada (PMAC) is
the leading, and the largest, association in Canada for supply
chain management professionals. With 7,000 members working
across private and public sectors, PMAC is the principal source
of supply chain training, education and professional development
in the country, requiring all members to adhere to a Code
of Ethics. Through its 10 Provincial and Territorial Institutes,
PMAC grants the SCMP (Supply Chain Management Professional)
designation, the highest achievement in the field and the
mark of strategic leadership. For more information please
see www.pmac.ca.

About Markit
Markit is a leading, global financial information services
company with over 2,300 employees. The company provides independent
data, valuations and trade processing across all asset classes
in order to enhance transparency, reduce risk and improve
operational efficiency. Its client base includes the most
significant institutional participants in the financial marketplace.
For more information, see www.markit.com.

About PMIsPurchasing Managers' Index (PMI) surveys
are now available for 32 countries and also for key regions
including the Eurozone. They are the most closely-watched
business surveys in the world, favoured by central banks,
financial markets and business decision makers for their ability
to provide up-to-date, accurate and often unique monthly indicators
of economic trends. To learn more go to www.markit.com/economics.

The intellectual property rights to the
RBC Canadian Manufacturing PMI provided herein is owned by
Markit Economics Limited. Any unauthorised use, including
but not limited to copying, distributing, transmitting or
otherwise of any data appearing is not permitted without Markit's
prior consent. Markit shall not have any liability, duty or
obligation for or relating to the content or information ("data")
contained herein, any errors, inaccuracies, omissions or delays
in the data, or for any actions taken in reliance thereon.
In no event shall Markit be liable for any special, incidental,
or consequential damages, arising out of the use of the data.
Purchasing Managers' Index and PMI
are trade marks of Markit Economics Limited, RBC uses the
above marks under licence. Markit and the Markit logo are
registered trade marks of Markit Group Limited.